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Friday, November 09, 2012

The Shifting Distribution Landscape - Kayak gets bigger value than Worldspan


To set the stage, we don't have a lot of billion dollar transactions in the travel space.  So before you chide me for comparing the Kayak acquisition to the Worldspan acquisition in 2007, hear me out.

Just six years ago, Travelport announced its intention to purchase Worldspan for $1.4bn.  Yesterday Priceline acquired eight-year old Kayak for $1.8bn. 

I haven't done a net present value analysis taking into consideration inflation, but anyway you look at this transaction, it is an interesting commentary on the shifting distribution landscape.

The Global Distribution System (GDS) business is one of aggregating buyers and sellers, through the provision of technology to both constituents to facilitate the electronic sale of travel globally. 

Travelport's purchase of Worldspan in 2007 acknowledged the value of that aggregation with its investment.   They paid not just for the technology and the people, but the distribution reach.  At the time, Worldspan powered Expedia, Orbitz, Priceline and tens of thousands of travel agencies worldwide, as well as providing airline hosting and IT outsourcing for a number of airlines, including Delta.  

Priceline's purchase of Kayak was also about reach.  In September of 2012, Kayak had over 7.4 million unique visitors utilizing their metasearch site and countless others utilizing their mobile platform.


The metasearch model is one that also brings together buyers and sellers, but rather than bringing them together to transact (as is done on Priceline and its other brands - including Booking.com and Agoda.com), it brings them together to show the consumer their options and to get them to that site to transact.  Kayak does a masterful job of that and has one of the best mobile applications that I've seen in our industry.

My point here is not that metasearch is better than traditional distribution for suppliers, but only to point out that the value of these two companies adjusted for inflation is very similar.

Distribution is not an EITHER/OR mandate.  It is about AND.

Consumers are multi-dimensional and they are definitely multi-channel.

Some are questioning the wisdom of Priceline's investment in Kayak, saying that the metasearch model is actually at war with the Online Travel Agent model.

I say to Priceline's leadership - bravo.

And one can only wonder....... would a GDS acquisition as a next move make sense??  ;)

Stay tuned.




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